Valuation Pre-Money or Post-Money

Hey guys,

Let's say a company is raising $5M in exchange for equity. Would it make sense to value the company pre-money or post-money? For example, if I wanted to run a DCF, would I project the company's FCF, etc. based on its current state without money? Or would it make more sense to run the DCF assuming they had $5M more in cash today? However, that then runs into the problem of not knowing how much equity the $5M would get, because we don't yet have the valuation. The reason I'm asking is, let's say the pre-money valuation is $20M. Then we could simply add $5M and get a $25M post-money valuation. But wouldn't that be incorrect since that extra $5M could create additional value (increasing returns to scale)? So it would make more sense to value the company post-money - perhaps we come up with a $30M post-money valuation, and then we would go back and say the $5M would be for 16.67%.

Thanks, appreciate any help!

 

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